Friday, January 24, 2014

I'm just going to share what I did this January: As the stock and bond market are going sideways, I bought Dollars and put it in BDO Dollar money market fund. I do not encourage just following what I did, please do your research too until you are convinced with the risk you are taking.

Why did I invest in USD?
I am betting that the U.S. Dollar will appreciate in the next 2-3 years.

How can I say that the Dollar will appreciate?
- U.S. economy is starting to pick-up.
- Hot money in the Philippines is flowing out.
- BSP's low interest rate is not attractive to foreign investors.
- U.S. Gov't starts tapering its Quantitative Easing policy which means less USD will flow to emerging markets.

The above reasons do not guarantee that the Peso will continue to depreciate. There are many factors affecting forex and many strategies that BSP can employ to reverse the process of Peso depreciation; one of which is increasing the interest rate, in which in my opinion it will happen soon, probably this year. There's already a pressure to increase the interest rate because a lot of $ is flowing out of the country in the recent months.

I bought the Dollar then placed it in BDO's Dollar money market fund. Money market is a low risk type of fund thus the return is minimal, earning around ~1.5% in one year. Still, this is better than just putting it in a savings deposit.

Even if my bet is wrong, I'll just treat it as part of my savings. Unlike stocks, betting in a foreign currency is usually not as volatile.